Canada Country Risk Report

Published 29 April 2015 | Quarterly

  • 42 pages
  • Instant access to your report online and PDF format through your account library
  • Includes 3 free updated quarterly reports
 
$1,195.00
Canada Country Risk Report

Core Views

  • The collapse in global oil prices will see Canada's energy-related fixed investment fall and rising unemployment hurt household spending levels this year and next.

  • A sharp decline in goods imports and demand for personal travel services will largely offset the adverse effect of lower oil prices on Canadian crude exports this year, ensuring a continued narrowing of Canada's current account deficit.

  • The Canadian dollar will remain under considerable downside pressure as oil prices remain low and short-term interest rates in Canada and the US continue to diverge.

Key Forecast Changes

  • We have lowered our real GDP growth forecast from 2.1% to 1.5% in 2015 and see growth climbing to just 1.7% in 2016, from our previous forecast of 2.3%, falling oil prices will see a sharp drop in fixed investment.

  • We have revised up our current account deficit forecast for Canada from 1.5% of GDP to 1.7% in 2015, on account of a decline in the value of goods exports.

  • We now expect the Canadian dollar to average CAD1.26/USD in 2015, compared to our previous forecast of CAD1.20/USD, as an interest rate cut and lower oil prices will see additional downside for the exchange rate.

  • We forecast an additional 25bps cut to the overnight rate to 0.50% in 2015, and see rates on hold until 2017.

Key Risks To Outlook

  • With falling fuel prices being, on balance, a boon for Canadian households, our revised private consumption forecast may be overly pessimistic, suggesting upside risks to our near-term real GDP growth forecasts.

  • Over the longer term, however, risks to our economic growth outlook are skewed to the downside, as the large household debt stock and falling employment expectations may necessitate a prolonged deleveraging process.

Macroeconomic Forecasts (Canada 2013-2016)
Indicator 2013 2014e 2015f 2016f
National Sources/BMI
Real GDP growth, % y-o-y 2.0 2.5 1.5 1.7
Nominal GDP, USDbn 1,812.3 ...

Table of Contents

Executive Summary
5
Core Views
5
Key Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
2015 Election Shaping Up As A Close Race
2015 Election Shaping Up As A Close Race
This year's federal general election in Canada will be a close race
The Conservative Party managed to halt its slide in the polls towards
the end of 2014, raising question marks over the Liberal Party's ability to maintain its upward momentum heading into 2015
tabl e: Politic al Overview
8
Long-Term Political Outlook
10
Strong Foundation, But Some Challenges From Within
Strong Foundation, But Some Challenges From Within
Canada has one of the highest long-term political scores in the world, reflecting its history of stable governance and strong institutions
Nevertheless, Canada faces political challenges over the coming decade, including a potential shift in power from east to west
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Structurally Lower Oil Prices To Delay Fixed Investment Recovery
Structurally Lower Oil Prices To Delay Fixed Investment Recovery
Falling oil prices will damage fixed investment growth, which will prolong the Canadian economy's rebalancing and lead to lower
Falling oil prices will damage fixed investment growth, which will prolong the Canadian economy's rebalancing and lead to lower
average growth over the coming years
Nevertheless, strong US demand and a weaker exchange rate will keep export volumes buoyed
and gradually pave the way for higher fixed investment growth, maintaining a long-term trend growth of 1
tabl e: Ec onomic Growth Forecasts
14
Balance Of Payments
17
Current Account Deficit Narrowing To Continue Despite Lower Oil Prices
Current Account Deficit Narrowing To Continue Despite Lower Oil Prices
Canada's current account deficit narrowing will continue over the coming years, aided by sharp exchange rate depreciation and
Canada's current account deficit narrowing will continue over the coming years, aided by sharp exchange rate depreciation and
improving economic conditions in the US
Lower oil prices will curtail export growth in 2015, but manufactured goods exports will
increasingly pick up the slack, ensuring a secular decline of the current account shortfall
tabl e: Current Ac ount Forecasts
17
Exchange Rate Policy
19
CAD: Fall In Oil Prices Reaffirms Negative Outlook
CAD: Fall In Oil Prices Reaffirms Negative Outlook
The Canadian dollar will continue to weaken against the US dollar over the next two years, averaging CAD1
200/USD in 2015 and
CAD1
Although we have already seen significant moves lower
in the exchange rate, a more dovish monetary policy outlook in Canada, compared to the US, and the halving in global oil prices since
in the exchange rate, a more dovish monetary policy outlook in Canada, compared to the US, and the halving in global oil prices since
June will keep firm downside pressure on the currency
table: BMI Currency Forecast
19
Monetary Policy
21
BoC Cut Indefinitely Postpones Policy Normalisation
BoC Cut Indefinitely Postpones Policy Normalisation
A surprise decision by the Bank of Canada (BoC) to lower its overnight rate by 25 basis points to 0
75% on January 21 indicates the
extent to which policymakers are concerned about the negative effects of sharply lower oil prices on the Canadian economy
We will be
revisiting many of our monetary policy and exchange rate forecasts over the coming days, but at this stage do not expect the beginning
revisiting many of our monetary policy and exchange rate forecasts over the coming days, but at this stage do not expect the beginning
of a broader monetary easing cycle by the BoC
TABLE: MONETARY POLICY FORECASTS
21
Chapter 3: 10-Year Forecast
23
The Canadian Economy To 2024
23
Structural Factors To Constrain Growth
Structural Factors To Constrain Growth
Canada has several structural strengths that will work in its favour over the coming decade, including an enviable fiscal situation, a
Canada has several structural strengths that will work in its favour over the coming decade, including an enviable fiscal situation, a
well-educated workforce, and a good business environment
However, growth will be constrained by other structural factors, including
deteriorating demographics, the end of the global commodity boom, and household deleveraging
We are forecasting average long-term
real GDP growth of 1
tabl e: Long -Term Macroeconomic Forecasts
23
Chapter 5: Key Sectors
25
Autos
25
table: Aut os Total Market - Historical Data And Forecasts
25
Food & Drink
27
tabl e: Food Consu mpti on Indic ators - Historical Data & Forecasts
28
tabl e: Mass Grocery Retail Sales By Format - Historical Data & Forecasts
31
Other Key Sectors
33
table: Oil and Gas Sector Key Indicators
33
table: Pharma Sector Key Indicators
33
table: Telecoms Sector Key Indicators
34
table: Defenc e and Security Sector Key Indicators
34
table: Infrastructure Sector Key Indicators
34
Chapter 6: BMI Global Assumptions
35
Global Outlook
35
New Era For Oil
35
Table: Global Assumptions
35
Table: Developed States, Real GDP GrowtH , %
36
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROW TH FORECASTS, %
36
Table: Emerging Markets , Real GDP Growth, %
37

The Canada Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Canada. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Canada's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Canada's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Canada's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Canada, including currency volatility, the commodity price boom and protectionist policies.

The Canada Country Risk Report by Business Monitor International (BMI) includes three major sections: Economic Outlook, Political Outlook and Key Sector Outlook.

Economic Outlook:

How will the Canada' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Canada through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Canada Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Canada and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Canada, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Canada over the next 5-years?

BMI's Canada country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Canada Market - Political Strengths, Weaknesses, Opportunities and Threats facing Canada.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Canada's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Canada’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Canada's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Key Sector Outlook*

Which industry sectors in Canada will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in Canada's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express